There are numerous reasons why a person may want to do away with a certain business. For some, it is a deliberate tactic to gain as much as possible when the product offered by the business is in its early moments in the product life cycle. This way the owner is able to gain high returns and then sell the business when the market becomes too competitive with the aim of starting a new business. Others have to sell the businesses due to incapacitation, complexities relating to succession, and the need to downsize the number of operations one is involved in. In the process of doing away with a business, one should consider the most appropriate method which guarantees the best possible benefits. This paper discusses the various exit strategies applicable in the sale of a business as a going concern with special reference to RLS2 Inc a sports footwear company.
Apart from the normal valuations done at the endpoint when the business is to be sold there have to be other methods used to ensure that the entrepreneur gets maximum benefits from the business on their way out. Some businesspeople simply opt to bleed the business on an ongoing basis prior to selling it off. This may be through excessive self-rewarding schemes and other such related schemes. Others opt to liquidate the business and sell off assets to regain their investments. In this arrangement though, the most important consideration is that the element of goodwill is lost as the assets are sold to different persons. It is always better to sell a healthy business as a going concern rather than simply liquidate it as this is a sure way of getting maximum returns (Hyman, 2010, Para 4).
As has been mentioned above, RLS2 Inc. is a global company whose investments span around the entire world and which is well known for high-quality sports footwear. This being the case, the process of disposing of should be carefully considered as a lot could be lost especially in the form of goodwill due to the strong brand image already existing for the business.
Divestiture of assets involves the release of assets for the business. It is the opposite of investment. The process may be undertaken slowly over time mainly to reduce the effect on the stocks or in huge chunks depending on the goals of the parties willing to sell the business. In most cases, a business experiencing strains in operations whether financially are in the market would prefer this method as it is likely o gain good value for the assets due to their detaching from the business. However, a business that is already doing well may be at a loss (Hyman, 2010, Para 5).
Handing over the business to a joint venture partner is a safer way of leaving the business. This guarantees that the efforts put in developing the business do not go to waste. Under normal circumstances, selling off the business to a partner involves the valuation of the entire business in terms of the assets liabilities as well as other factors such as goodwill. The Entire value arrived at is allocated to each partner according to their level of investments made in the business or according to some prearranged formula. The partner who is leaving then receives compensation from the partner who is to take over the entire business. This way every party involved gets optimal returns from the business. Moreover, the business is able to continue (Steve, 2009, para5).
Another ingenious route while attempting to leave one form of business to another is through diversification. Here the business slowly shifts resources from the production of one product into another. The result is that production of the undesired product shrinks over a period of time while the desired product is expanding by the day. It all starts from diverting bits of cash used in the production of the undesired product towards the desired product. As time goes on more tangible assets are converted. At last, the company stops the production of the undesired good completely. The strategy is mostly applied in products whose market is expected to shrink or which is increasingly becoming obsolete.
However, in the case of RLS2 Inc, this strategy may not be for the benefit of any party since the sports footwear products under production are highly profitable and accepted worldwide.
Shutting down operations is probably the worst exit strategy. This is because it does not yield any benefits to the owners. All the company’s value is put in jeopardy. It may however be a viable option for a business that is experiencing acute difficulties and is yet to find a suitable buyer. For such a business it may be true that the stoppage of production may stop the deterioration of the business to even deeper troubles which may cost even more to clear (Steve, 2009, Para 4).
As can be seen, the only viable exit strategy for RLS2 Inc, a company with global repute is through handing over to a joint partner with the ability to buy the stake. The main reason is supported by the fact that the partner is already well acquainted with the operations of the business hence is better equipped to run the business even better than the incorporation of a third party. This not only guarantees the continuation of the business but also the maximum benefit to the parties concerned. Divestiture of assets, diversification, and shutting down are all sub-optimal strategies in the case of the company.
References
Hyman, G., (2010). Business succession planning: Developing an exit strategy. Web.
Steve, R., (2009). Exit Strategies for Your Business. Web.